JENNIFER WELLS
Toronto Star

You can put your ear to the jungle telegraph and hear not a peep from the country’s big banks on the big news out of Sears Canada Inc.

The retailer, as we learned last week, is applying to Ottawa, via the Office of the Superintendent of Financial Institutions (OSFI), to establish a federally regulated bank, a decision that will ultimately wend its way to the minister of finance for final approval.

The Sears Canada board met yesterday to pass a resolution to seek the federal charter. The company has already had one meeting with OSFI and intends to submit a draft proposal in the next month or so.

The first iteration of the Sears Bank will be aimed at consolidating, and goosing, its MasterCard and Sears card operations, a move not unlike that taken by Canadian Tire, which was granted OSFI approval late last month to launch Canadian Tire Bank.

In the case of Canadian Tire, the retailer was eager to streamline its card operations across the chain of associate stores, and it made no promises or predictions of extending its range of financial services into deposit taking or mortgages.

“Don’t look for us at the corner of Main and Anywhere anytime soon,” the company’s communications director told the Star’s Rob Ferguson. Upon examination, Canadian Tire Bank seemed little more than a bit of corporate housekeeping.

Sears, on the other hand, has been careful not to put a fence around what Sears Bank could be one day.

A corporate spokesperson yesterday reiterated the chain is “not ruling anything out in the future,” a chilling phrase where big bankers are concerned, but positively heart-warming for consumers. Mark Cohen, the company CEO, said last week that establishing a bank “will enable Sears to bring enhanced competition to the Canadian financial services marketplace,” which the big banks have repeatedly said they welcome.

The big banks have to know that in the U.S. there’s a big push, accompanied by a big fight, over whether to let retailers like Wal-Mart become banks, too. The mighty Wal-Mart, which outpaces any financial institution you can name in the U.S., has been trying to become Wal-Mart Bank for years, most recently when it tried to buy Franklin Bank of California. State legislators said, upon consideration, “No.”

But a current bill before Congress considers allowing non-financial institutions to acquire so-called Industrial Loan Companies, or ILCs, and to lift current restrictions that contain existing ILCs to their home states. If passed, the bill will surely launch Wal-Mart as a category killer in savings and chequing accounts.

The battle lines are drawn. Federal Reserve Board chairman Alan Greenspan doesn’t care for the idea, as the parent company, the nonfinancial institution, would be beyond the reach and scrutiny of the Federal Reserve, whose job it is to ensure the financial strength of the organization � and the security of depositors’ funds. A past president of a banking group in Washington said green-lighting Wal-Mart Bank “would have the potential to bring, if not the Black Death, at least the plague to thousands of community banks.”

Wal-Mart sees it differently. “I’d like to do it more along the Wal-Mart way than other peoples’,” said the CEO.

It’s the strength of the brand the community banks fear, of course. Or trans-national Big-Box Banks, as observers have taken to calling the Wal-Mart threat.

This is in contrast to those banking kiosks introduced on a state-by-state basis � the CIBC’s unsuccessful Amicus kiosks in Winn-Dixie stores in Florida and Safeway stores in California, for example � that were launched on the premise that grocery-laden shoppers might be willing to chat with a financial adviser on the way out the door. As it turns out, they weren’t.

Of course, we here in Canada already have Big-Box Banks. They haven’t yet had to deal with the competitive threat of a retailer treading on their turf, or at least not in a pure sense. President’s Choice Financial, which issues its MasterCard through President’s Choice Bank, is partnered with the CIBC’s Amicus Bank for such services as savings and mortgages.

U.S. observers have suggested that retailers might actually be in a position to do a better job of marketing to consumers. Surely on this Canadians and Americans can agree. Additionally, a company like Sears carries wares that require deep consumer consideration � to buy or not to buy that couch. Some people have bought a house in less time.

The first task for Sears Canada will be to urge the migration of its legion of inactive cardholders.

Of the 9 million Sears cards issued, 4.2 million are “active.” The rest lie dormant in sock drawers or deeply forgotten wallet portals. But that 9 million figure gives the retailer a tantalizing 83 per cent penetration rate amongst Canadian households.

And thanks to parent Sears, Roebuck and Co., which owns 54 per cent of Sears Canada, the company has a deep well of experience from which to draw. The long ago experiment by the U.S. company to sell financial products via brokerage Dean Witter is dead but not forgotten. This time round, Sears, Roebuck has sold its credit card portfolio � private label and MasterCard � to Citigroup Inc., leading to speculation that Sears Financial Centres are on their way. You can bet that with more than 30 million inactive Sears card holders in the U.S., Citi will be aggressively moving to increase what is already a $29 billion (U.S.) portfolio.

Sears Canada will soon be providing OSFI with its business plan � pro forma financial statements; an analysis of its target market; a three-year operational strategy. OSFI’s examination could take three months. After that, who knows.

If consumers are lucky, they will one day get a taste of what true competition in banking is really all about.